Investment Column: It is still worth tucking into Domino's

Misys; Future

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The Independent Online


Our view: Buy

Share price: 458.1p (-50.4p)

The City appeared not to like the taste of the third-quarter figures from Domino's Pizza UK yesterday.

The pizza delivery firm's shares tumbled but this was probably connected, in part, to investors taking a slice of profit after a sharp jump in its share price since the end of June when they languished below £4.

Indeed, there were plenty of tasty morsels for investors to sink their teeth into in the numbers. Domino's group like-for-like sales grew by 3.9 per cent, including Ireland, but by 4.1 per cent in the UK over the 13 weeks to 25 September.

On both fronts, this represents an uptick in its performance from its first half, which is highly reassuring given the consumer downturn and increased focus on cooking at home, according to the major supermarkets. The group also said that its profits for this financial year will be in line with expectations.

Furthermore, Domino's continued to deliver a surge in its online and mobile sales in the third quarter. Online revenues at the pizza specialist now account for 46.6 per cent of its delivered sales in the UK and no doubt will rise to more than half in the next year, if not sooner.

Perhaps more intriguingly, orders taken by Domino's on mobile devices now comprise 13 per cent of all e-commerce sales. No doubt the mobile revolution is a key reason why Domino's hired Lance Batchelor, the former chief executive of Tesco Mobile, as deputy chief executive before he takes the helm after the incumbent Chris Moore retires on 25 December at the end of its financial year.

While Mr Moore has delivered a surge in profits and Domino's shares since he became chief executive in 2007, we view the hiring of Mr Batchelor as a shrewd move.

Overall, we believe the only spanner in the works is its lofty forward earnings multiple of 23. But with a proven track record in a downturn, roaring sales and an expansion in Germany under way, we are buyers.


Our view: Buy

Share price: 236.1p (+3.9p)

We've been buyers of Misys. Back in April, we were pleased with news of rising revenues, and very impressed with the order intake. Fast forward to yesterday, and the banking software firm said demand from fast growing markets for its newer offerings was strong.

This demand is helping offset the impact of the pressures on the financial markets, and revenue in the company's first quarter was up 4 per cent.

As for the share price, it did pretty well after our note, jumping comfortably above 400p in June, against 335-odd when we said buy. Of course, that boost was down to interest from Fidelity National Information Services. When that approach fell apart, the stock fell, and it fell hard. Now, it changes hands at around 236p.

Given that the business is doing well, we can think of two reasons for the slump. The unsuccessful approach is the obvious one. But markets may also be fearful of the impact of the recent market and economic turmoil on Misys's customers. Such concerns are perfectly justified in light of the grim backdrop.

However, the share price slump means that Misys now trades on multiples of 11 times forward earnings for next year, falling to under 9 times on the estimates for the year after that. The concerns, in other words, are more than reflected in the share price. We would take this opportunity to add to our holdings.


Our view: buy

Share price: 12.125p (unchanged)

Yesterday's pre-close update from Future was reassuring. After the somewhat grim update in July, the company indicated that the full year results would be in line with hopes.

The key issue in the summer was the performance of the publishing group's US unit, which was hit by poor performance. Yesterday, Future said its board was "now considering a wider range of strategic options in respect of its US operations". We await more detail on that over the coming months.

Future also said that it expects to comply with all its bank covenants, noting that it estimated net debt to stand at under £14.5m at the end of September, down from £15.6m in June.

Still, we would normally stay away, owing to caution about trading. But Future has an ace up its sleeve. The prospective yield stands at more than 9 per cent, according to Altium. Yes, it may be cut. But it's attractive even if you shave a large chunk off the figure.